The current structure of Illinois’ government pension and retirement plan may allow former Maine Township High School District 207 Principal Audrey Haugan to receive $7.137 million in benefits—almost 20 times more than she paid into her savings.

The current structure of Illinois’ government pension and retirement plan may allow former Maine Township High School District 207 Principal Audrey Haugan to receive $7.137 million in benefits—almost 20 times more than she paid into her retirement savings account.

According to data from the Illinois Teachers’ Retirement Fund, Haugan paid $358,381 into her pension account over 33 years.

Three years after her June 30, 2018 retirement, the former principal may reasonably expect to have collected a total of $377,529 in pension payments if she receives standard payments and cost-of-living increases. After 35 years of cost-of-living adjustments, Haugan will receive an annual pension payout of $164,149, significantly more than she earned while working as a teacher or a principal.

Promises Today, Taxes Tomorrow

Joy Pullmann, a research fellow on education policy for The Heartland Institute, which publishes Budget & Tax News, says the public-pension status quo represents an intergenerational transfer of wealth.

“This sort of thing happens because it's easy for state and local lawmakers to give in to union and employee demands for higher compensation, especially when they can put off the costs of doing so by merely contracting debt that future and not present taxpayers have to pay off,” Pullmann said.

Defined-benefit (DB) pension plans guarantee employees a set benefit amount upon retirement. In a defined-contribution (DC) pension plan, the employer pays a fixed amount during the course of a worker’s career, and the amount is deposited into a personal account controlled and managed by the employee, similar to 401(k) pension plans enjoyed by workers in the private sector.

Adam Schuster, director of budget and tax research at the Illinois Policy Institute, says DB plans are disconnected from reality.

“One of the fundamental problems with defined-benefit pension systems is that the amount you pay in is not connected to the amount you receive in retirement,” Schuster said. “This makes the system unpredictable and unaffordable. Politicians designed a broken system.”

Schuster says Illinois’ government pension system are unrealistically generous with other people’s money.

“The pensions you see in Illinois are way out of line with what you’d see in the private sector,” Schuster said. “Private-sector workers couldn’t expect to retire with millions if they only put $100,000 away.

“Lawmakers should get out of the retirement game,” Schuster said. “Lawmakers are notoriously bad at handling pensions, because they’re not accountable for the results and don’t have an incentive for long-term financial planning.”

Rude Wake-Up Call Predicted

Pullman says the bill for the DB pension system is going to come due soon.

“Years of running this scam at the local, state, and federal level have given us a hurricane of pension debt that is about to hit the country,” Pullman said.

Schuster says the math does not work out, and taxpayers will be the ones paying the price.

“Illinois governments can’t afford the generous pension systems promised by politicians of the past, and that’s why the systems have been underfunded,” Schuster said. “Pension liabilities are already growing far faster than inflation and personal income, meaning they’re outpacing their funding source. On top of that, the financial pressure of pensions is crowding out core government services at all levels.”

“What needs to happen is that governments should find the money right now to pay for the spending they want,” Pullmann said. “If they want to make a big expense, like normal people they should save up at least a down payment, just like every other responsible taxpayer must to make a big purchase like buying a house.

“Voters should make them do this, and fuel the outrage they feel at situations like this principal essentially scamming the system legally, to get representatives to pass measures that require it, like balanced budget amendments and debt limits,” Pullmann said.

Suggested Course Corrections

Pullmann says requiring more personal responsibility would help solve the public pension problem.

“Lawmakers at all levels should make individuals responsible for their own expenses to the extent possible,” Pullmann said. “So, instead of offering government pensions and increasing the possibility that people can do what this principal did, they should only pay employees’ salaries and let them use their own salaries to fund their own retirements. Then it would be impossible for people to legally bilk taxpayers.”

Schuster says creating a DC plan for Illinois government employees and reducing existing pension liabilities are the only ways to fix the state’s budget problems.

“Ultimately, the pension crisis in Illinois is reliant on bringing pensions in line with what taxpayers can afford and what can make the system sustainable,” Schuster said. “The only way out of this mess is structural pension reforms, including a constitutional amendment that allows us to reduce current liabilities and personal retirement accounts, 401(k)-style, for all new workers.

“All newly hired public-sector workers must be moved on to mandatory 401(k)-style personal accounts, with an option for existing government workers to control their own retirement as well,” Schuster said. “Ending the defined-benefit system for future workers would ensure that spending on government worker retirement is secure and predictable going forward.”